Which of the following is considered a tax-exempt income?

Interest from municipal bonds is considered tax-exempt income because it is typically issued by state and local governments to fund public projects. The interest earned on these bonds is not subject to federal income tax, and often, it is also exempt from state and local taxes for residents of the issuing jurisdiction. This tax advantage makes municipal bonds an attractive investment option for individuals in higher tax brackets looking to reduce their taxable income.

In contrast, salary from employment, rental income, and capital gains from sales are all subject to taxation. Salary is considered ordinary income and is fully taxable at the federal level. Rental income must be reported as ordinary income on the tax return and is subject to federal income tax, although certain deductions related to expenses can be taken. Capital gains are realized when an asset is sold for more than its purchase price, and these gains are also subject to tax, although they may be taxed at different rates depending on how long the asset was held.